I voted for monsters and NPC's, but not PC's. I also voted it be optional.
I agree with several other posters that not all monsters should fight to the death.
I'd at least like some guidance as to how likely a particular monster would be to flee. For example it may be that Goblins flee at the drop of a hat, while a mind flayer may fight or flee, depending on what the best option for it is at the time. A golem, on the other hand, may fight to the death (or until certain conditions in its programming are attained - the creature it is fighting leaves a particular area, for example).
Morale could be conditional too. For example, a creature may flee from a meal if it realises it is outmatched. However, if it is defending its lair or children then it might fight to the death.
Even some guidelines on the sort of things that increase and decrease morale would be good. For example, creature has lost x% of it's hit points, y number of allies have been killed/fled, creature is defending home, opponent outnumbers creature + his allies, opponent is obviously more skilled, etc.
While the final call could be down to the DM (these goblins will not flee, no matter what), some assistance or general guidelines would be good, even if it was optional.
Olaf the Stout